There are a lot of big things to plan for in a new year such as upcoming vacations, charitable goals, and everyone’s favorite… tax law changes! But don’t worry, we work together with our clients’ CPAs to monitor tax law changes so you don’t have to. While we don’t yet know all the changes that will be put into law, the IRS has released some guidance for contribution limits that you can plan on. Below, we outline four easy ways to make 2022 your most tax-efficient year yet.
Plan Tax-Efficient Giving
Giving is something many of us feel we’d like to do more of, and thankfully there are a few tax-efficient ways to contribute to your favorite non-profit organizations. When organizing your charitable intent for this year, talk to your financial advisor about gifting appreciated stock – you can deduct the fair market value of the stock, regardless of how much you originally purchased it for. And don’t forget to check if your contributions are eligible for an employer match.
If you are over the age of 72 and take a Required Minimum Distribution (RMD), talk with your financial advisor about making a Qualified Charitable Distribution (QCD). When you choose to give through QCDs, these tax-free donations count towards your RMD requirement, which ultimately decreases your taxable income for the year.
If you itemize your tax deductions, keep donation receipts so your CPA can maximize the tax benefits on your next return; you can deduct up to a certain amount of charitable contributions depending on your income. In the year you itemize deductions (versus taking the standard deduction), consider lumping charitable contributions every other year, so you can alternate between using the standard deduction and itemizing.
Adjust Your Tax Plan For Life Changes
Both exciting life changes and difficult seasons can have lasting impacts on your tax plan. Family changes such as marriage, divorce, or new children and grandchildren may impact your tax filing status or increase the benefits of tax-efficient education savings. A new job may offer different benefit choices that affect your taxable income. Inheriting money or retiring can significantly adjust your income and deductions game plan. If you anticipate any life changes in 2022, give your financial advisor a call. We can help walk you through options for your unique situation, from Roth conversions in retirement to comparing 529 accounts.
Max Out Your Health Savings Account (HSA)
If you participate in a qualified high deductible health plan, max out your HSA contributions. In 2022, participants can contribute $3,650 for individual plans and $7,300 for family plans, with an additional $1,000 if over age 55. HSA contributions are triple tax-advantaged: 1) Contributions are exempt from state and federal income tax, lowering taxable income, 2) Invested funds grow tax-free, and 3) Distributions for qualified medical expenses are tax-free. To see if you qualify to open an HSA, ask your financial advisor, and check the IRS guidelines. Remember that folks enrolled in Medicare are not eligible.
Increase Your Contributions To Retirement Plans
Good news – the IRS has increased the amount you can contribute to a 401(k) or similar workplace retirement plan for tax-deferred growth in 2022. If you are employed, you can contribute up to $20,500 and an additional $6,500 for those 50 or older.
Limits to 2022 IRA contributions have remained at $6,000 with an additional $1,000 for those 50 or older. Be sure to ask if your employer has changed the amount they contribute (or match) for 2022. Your advisor can help you find ways to increase your retirement savings – with the power of compound interest, this can have huge impacts to your financial plan!
2022 Contribution Limits
Traditional and Roth IRA
$6,000, or $7,000 if over age 50
Workplace retirement plans, including 401(k), 403(b), 457, and TSP
Your contribution: $20,500 or $27,000 if over age 50
Including employer contributions: $61,000 total (cannot exceed 100% of annual compensation)
HSA (individual coverage)
$3,650 or $4,650 if over age 50
HSA (family coverage)
$7,300 or $8,300 if over age 50